Friday, 25 May 2018

Household division of labour and sealed-bid tenders

In this week's Insights newsletter, I have a bit of fun with some econoparenting. 
I know that people who aren’t economists manage to raise kids and that it all seems to work out in the end, but I’m not entirely sure how.

I have learned that standard practice in the Crampton household diverges a bit from practice elsewhere. So gaze in awe, or horror, at our system for managing the more irksome household chores.

Some chores, the kids are happy to do just as part of being happy members of the family – and to get their dollar-a-day allowance instead of an amount discounted by the cost they imposed on their parents that day.

Other chores are less fun. Those go up for competitive sealed-bid tendering.

At the start of every quarter, we list the jobs that need to get done around the house.

We make a point of listing those chores that are more efficiently done by the source of the chore in the first place, and ones that we parents find particularly unappealing. So the kids can bid to do their joint laundry, fold it, and deliver it to their respective rooms. Vacuuming and washing the floors is another outsourced chore. And so is keeping the cat boxes in order.

The children submit sealed bids tendering for each of the chores – the weekly price they would charge for undertaking the chore satisfactorily. It is very important to define the tasks precisely, like the areas covered by a mop-and-vacuum requirement, or the frequency of cat box cleaning.

We tell the children that we need not necessarily accept the lowest or any bid. I look over the bids and award the chores for the quarter.

It has been transformational. Before we adopted the system, the kids would whine about doing chores. Now, we can threaten to shift to the other supplier. They each want to win as many chores as possible.

Aligning incentives can work wonders: instead of throwing mostly clean clothes in the laundry so that he doesn’t have to deal with re-folding them for another wearing, our ten-year-old makes sensible decisions and polices his sister as well.

And they haven’t yet started colluding against us, so that’s great too.

When I told folks around the office about our contracting arrangement, Oliver thought it was funny and told me to write it up for Insights. But I think it far more best-practice exemplar than satire.

Consider it for your upcoming third-quarter household planning.
The kids getting a bit taller will help. Right now there's only really one potential contractor on the laundry because the dryer is too high up for the other contractor. It's notionally contestable, but the current contractor will have to figure out that it'd be more expensive for us to use the other contractor on that one. And when they're tall enough to use the ironing board.....

Hydras. How do they work?

Before I get to those, I just do need to reflect a little bit on some of the comments that have been made in the debate this evening. The first one I want to reflect back on, and it came through a number of National Party speeches—it had obviously been produced from the research unit, and different National Party MPs were trying to use it in a slightly different way—came out in the form of an accusation that this Government was some kind of three-headed monster, or, as Sarah Dowie put it, a three-headed hydra. Well, what I just want to explain briefly, for those members of the House who didn't study classical studies while they were at school is that the thing about hydras is that they're immortal and every time you attack them they just come back stronger. That is going to be the case with this Government. [emphasis added]
Now I haven't studied classics, but I've been listening to the Greek Myths. A lot. Over and over in the car - when we're not listening to Sherlock Holmes stories.

Here's StoryNory (strongly strongly recommended if you do any kind of long car ride with kids):
Heracles’ next task was to fight another terrible creature. This one lurked in the swamps of Lerna, and it was known as the Lernaean Hydra. It was giant snake with multiple heads. If you cut off one of its heads, two more would grow in its place. It was indeed a fierce opponent. Even Heracles did not think he could fight this monster on his own. He enlisted the help of his nephew, Iolaus. Heracles fought the Hydra with his sword, and each time he lopped off one of its heads, Iolaus jumped in with a torch and burned the stump before it sprout a couple of new heads. Hera looked down on this struggle to the death, and thought, “Two humans against one monster! That’s hardly fair!” and she sent a giant crab to join in the fight. Heracles and Iolaus stood back to back and fought off both these supernatural beasts. After defeating them in battle, Heracles collected some of the Hydra’s blood to use as poison on his arrows.

He returned to Eurystheus with news of his victory, but the king was not satisfied. “You did not fight the Hydra on your own,” he said, “And so the labour does not count.” Heracles shook his giant fist at the king, but Eurystheus, who was feeling safe at the top of his tower, shouted down: “It’s no use arguing. You’ve still got nine more labours to do, Heracles. Your next task is to bring me the sacred dear of Artemis – you’ll find it roaming the hills of Ceryneia. You will know it when you see it. It has little horns, made of gold.”
So. Should I be telling the kids that StoryNory had it all wrong and that the hydra is really immortal? Are there more complete versions of the story where Iolaus's trick only delayed the creature's regeneration?

HT: Chloe Swarbrick

Regulatory Catch-22?

Last month's court decision, and subsequent MoH position statement, mean that heat-not-burn tobacco products are legal to sell in New Zealand. 

But the MoH position statement said that other tobacco control regulations will apply to reduced-risk tobacco and tobacco-derived products, barring the ban on indoor use in workplaces.
Therefore, the same SFEA regulatory controls apply to smoked tobacco, heated tobacco and vaping products that are manufactured from tobacco. This includes the ban on sales to minors and restrictions on advertising.

The ban on smoking in indoor workplaces, early childhood centres and schools only applies to smoking. It does not apply to vaping or products that are not smoked, such as heated tobacco products. Individual employers and business owners decide whether or not to include vaping in their smokefree policies.
This could be reasonably read as meaning that MoH intends also that the plain packaging regulations intended for cigarettes would also apply to a pile of reduced-harm products. It might apply to vaping products sold by companies that are upfront that the nicotine is derived from tobacco, and also heat-not-burn products that heat tobacco sticks.

The plain packaging regulations require display of graphic warnings about the dangers of smoking. Pictures of diseased lungs, gangrenous limbs and the like. They all say things like "Smoking causes lung cancer".

But standard commercial packaging regulations prohibits misleading claims on packages.

So it could be the case that providers of tobacco-derived reduced harm products would be simultaneously required to put on graphic warnings that might lead consumers to believe that the warnings apply to the product within the package, and banned from putting those warnings on the packages because the warnings would be misleading when applied to reduced-harm products.

It would be nice if MoH could provide a bit more clarity around this stuff. Would a company get in more trouble for complying with the plain packaging rules when selling tobacco-derived vaping product, or for not complying with the plain packaging rules? Ideally, plain packaging shouldn't apply where there isn't combustion.

Thursday, 24 May 2018

Zero percent blues

There's always an opportunity cost.

Tertiary education is heavily subsidised in New Zealand. While students pay tuition, their tuition fees cover a bit less than 20% of the cost.

And subsidies provided through the zero-percent student loan scheme are substantial - every year, the government writes down the value of the loans provided to students to reflect the combination of students who'll never pay the thing off because they don't hit the income thresholds for repayment, the students who'll just default or run overseas, and the value of the interest-rate subsidy. That's running around $650 million per year.

We'd argued that the government should reinstate interest to make the loans-scheme self-financing and use the savings to improve tertiary access in two ways: improvements in schools that need help in getting kids ready for tertiary in the first place, and means-tested funding to support tertiary students in greater need.

One consequence of the 0% loans scheme is that the government has to restrict access to loans to prevent people from borrowing infinity dollars and making an arbitrage play. And so there's a maximum number of EFTS that you can take before you can't borrow anymore. It's binding for medical students. Some of those students might have hoped the new government would ease that back; they would have been disappointed.

Labour's instead followed through with their promise to abolish tuition fees for the first year of university study.

Here's Stats New Zealand on the effects of the tuition-free policy:
The introduction of the Government’s new ‘first year free’ policy for tertiary education had a dampening effect on inflation for all households. The highest-spending households received the greatest benefit because they spend proportionally more on tertiary education.
Hooray! The cost of that? A funding freeze for the universities, or something close to it. Here's Times Higher Ed:
New Zealand universities’ worst fears appear to have been realised, with the staged elimination of tuition fees costing them any hope of a funding increase.

The Labour-led government’s first budget, handed down on 17 May, included almost no additional money for higher education. Representative body Universities NZ said that this would leave institutions about 3 per cent worse off in real terms over the next 12 months.

“This is the first time, in as long as our records go back, where there hasn’t even been a nominal cost-of-living increase,” said UNZ executive director Chris Whelan. He said that, while inflation in New Zealand was running at about 1.1 per cent, the costs of universities’ principal expenses – salaries, construction and licensing – were rising at between 4 per cent and 5 per cent.
Fun times for the universities. We can hope this means the disestablishment of some of the various administrative Associate Vice Chancellors for Virtuous but Non-Academic Things that have cropped up, and their related offices and staffs,* but the better betting odds would be on cuts or freezes on the academic side.

* I'd expect Tim Hazeldine would be the one most likely to be running a tally of these things.

Wednesday, 23 May 2018

Otago no-fun

Otago University once had a bit of a reputation as a party school, despite its public health department. 

Times change. The Spinoff reprints a piece by Chelle Fitzgerald from Otago student magazine Critic going through the bars they've lost:
The Gardies was the crown jewel of Castle Street. It hosted International Nude Day, the beloved holiday instituted by former All Black, Highlander and Sports Café presenter Marc Ellis. Ellis also judged the regular Beerable Arts competition there, usually streaking during the competition. Students would flock there specifically to see him nude. The 2010 closure of the Gardies, now a sleek university study centre, heralded a turning point in Otago scarfie culture.

I caught up with Marc Ellis to chat about how things have changed in Dunedin. He was at the Satay Noodle House, “a happy place” for him, tucking into a seafood deluxe. Famously, he once tried to purchase his former happy place, the Gardies. However the university swooped in and snatched it, he claims. “The pub had an evaluation at $1.1 million, and when the university heard we were trying to buy it, [with] the breweries’ backing, they paid $1.6 million for it – and that’s in the middle of a global financial crisis.”

Interestingly, the university found this stack of money at a time when they apparently could not even muster the funds to keep various departments fully staffed.

Critic uncovered emails using the Official Information Act which showed the university purchased Gardies with no plan of how they were going to use the property (while some believe this was simply to stop Ellis getting his hands on it, official evidence to support this has never surfaced).

Ellis had hoped to keep the Gardies as a pub owned by students, for students. “We were going to sell shares for $1000 to students. So if it cost $1.2 million, you’d get 1200 shareholders – we don’t own it anymore by that stage, it’s owned by the students. So you’ve got 1200 people who have a vested interest in ensuring it goes well, so they come down and have a beer, it’s actually a really simple strategy. But the university runs Dunedin, so the council would be on your back, and then you’ve got the legislators making it difficult, they can red tape you and make your life an absolute misery.

“It’s sad, isn’t it, university now is so different because you’ve got a board of grey-headed old white men making decisions which are just totally off pace with the evolving world. And they get it wrong – they’ve just ripped the heart and soul out of the university.”

Ellis has a point. With the elimination or reimagining of student pubs like the Gardies, the Bowler and the Cook, our neighbourhood has really changed. North Dunedin used to be a special place to blow off steam during uni. “It was a really beautiful melting pot and focal point for people from different courses, and different lifestyles and backgrounds, to meet, and to bond,” Ellis says. “And to remove that, and force them to try and hope to meet like-minded souls in the Octagon, with everyone else, and the general punters wanting a beer after work, it just doesn’t work.”
I love this bit from Ellis too:
“What’s the logic of the university, seriously? Trying to get rid of the pubs so there are a thousand people at ten flat parties, which is harder to control than a thousand people at one pub.”

“There are a lot of things conspiring against the survival of the student pub. You could bring it back, but you’d be fighting battles with all these bloody puritans and board members. Congratulations to the grey-headed old fuckwits who’ve sanitised university. Well done!” 
If only Otago constrained themselves to their own campus rather than having more imperialistic ambitions....

Update: the Proctor's confiscated all the issues of the student magazine's special issue on menstruation. How long until they're basically New Zealand's bible college, except secular?

Tuesday, 22 May 2018

Reader mailbag: Caveats on policy costings

This morning's inbox came with excellent comment from an informed reader about the difficulties in getting reasonable independent policy costings. The email reads (and is shared with permission):

  • Do not underestimate how effective agencies can be at blocking information they do not want others to know. One reason the costings will be poor is because all kinds of information will not be unavailable because the agency, not the minister, do not want to be challenged. You will find "privacy" and "computer systems" becomes big issues...
  • The main advantage of a single separate agency is consistency in the assumptions. At the moment they change depending on the whim of the needs of a budget bid. If agencies have to write down and be long term accountable for the assumptions, that will be a big step forward in like for like comparison. Even if the costings themselves are no more accurate, they comparison between policy costs (bigger, smaller, etc) will be more robust
  • My experience of independent agencies is not good: stats NZ, Office of the Auditor General, Ministry for Women, SuPERU, etc They are all small agencies with some kind of "advocacy" role that they use to justify pursuing their own agenda. Ministerial accountability has its limits, but it is at least real accountability.

I agree with most of this. Privacy seems to be the default "Computer says no" reason for not doing things. Also agree that on the advantages of having a single consistent, if biased, ruler over having multiple different rules with different biases. 

My prior piece had looked at the ways a party might avoid having rigourous costings applied. Accountability for the costing agency would be a fun one - perhaps reinstate betting markets on whether policies wind up costing what they're advertised to cost? Ex-post assessments?

Costing policy

As the Greens' proposal for a policy costing unit looks like it'll be going ahead, here are some of the fun bits they'll have to deal with in setting it up. 

From my piece on it over in the NBR a couple years ago, when the Greens first pitched the idea:
The Greens’ proposal that election campaign promises be costed has drawn the praise it is due: it is an excellent proposal.

But it is a harder job than it might seem.

Even during the normal course of events outside of election periods, adequate costings or cost-benefit assessment of policy seems more the exception than the rule.

If the government is to build civil service capacity to cost all political party promises during the election period, why not use that opportunity to build an agency able to review policy over the course of the government’s term?

Let’s start with the difficult part on election policy costings.

Parties wanting costings on their policies can get them through the Treasury – although that potential is far more notional than real.

The State Services Commission’s Guidance for the 2014 election included guidelines for costing party political policies; the Treasury also provides a high-level guidance document.

Going through minister

But requests for costings must go through the minister of finance. This is no fault of current or previous governments – the Treasury is responsible to that minister.

A party outside of government requesting a policy costing could well worry the minister might request sensitive details. So it seems unlikely opposition parties would seek such costings under the existing guidelines.

Were an independent agency of Parliament to undertake the costings, what the agency might lose in expertise would be made up for in credibility: asking an agency responsible to a minister to undertake work that would be kept confidential from that minister does not work well. The Greens’ proposal consequently could be better housed elsewhere.

Suppose that agency provided costings on a voluntary basis. If everything were working properly, parties wanting policy costings from that kind of independent agency would request them early in the election period.

Time to do the research

The agency, and the ministries with which it might need to coordinate, would then have sufficient time to undertake the work. The parties could still time their policy releases throughout the election campaign but they would have had to have developed them early enough to have them costed.

Policies that parties would prefer not be costed would not be costed, while those that are costed have the cooperation of the party requesting it. Policies would be costed when parties expect they would fare well under evaluation.

That changes when an agency is charged with costing all policies.

Imagine you were a political consultant who came up with some policy that you, and your party, reckoned would be great politics, even if it were terrible economics.

Currently, you would never seek a sound costing on that policy – and you would hope the Taxpayers’ Union would not hire someone to run an eye over it.

Were all election promises costed by an independent agency, you would be well advised to delay submitting your policy for costing so that only a cursory take on it could be provided.

You would also be tempted to wrap the policy in enough complexity that any costing provided in a hurry would have to make simplifying assumptions. Or, conversely, you could avoid providing any of the details necessary for a costing, saying the finer points would be worked out while in office.

You could then attack any assumptions the costing unit might be forced to make as being Treasury ideological “burps” – as former Finance Minister Michael Cullen once dismissed sound Treasury advice.

An agency doing this job would need to have a fair bit of in-house expertise in costing. It would also need to have a strong reputation for down-the-line analysis. And, for it to do any good, there would have to be underlying voter demand for sound policy costings.

That last requirement is a bit of a worry. You might think that, if voter demand for policy costings were strong, parties would already be seeking independent and credible costings of their main policy planks.

Switching the default might make a difference. Currently, policies are only costed where parties want them costed. In the alternative, policies would only fail to be costed if the party had something to hide, or if the party came up with its policy proposals late in the game.

Voters who came to expect costed policies might draw the proper inference from ones that were not able to be costed.

And so while I really rather like the idea of all policies’ being costed, it will not be a small job where parties might want to throw sand into the works – for some policies.

But the attention to the costs of policy is strongly welcome.

The cost of existing policies, unfortunately, draw rather less attention. Even in the absence of independent costings, political parties have reasonably strong incentive to draw attention to the costs of their opponents’ platforms.

New policies proposed after the election at least draw cursory assessment as part of standard regulatory impact analysis – even if Sapere’s analysis last year found that 20% of regulatory impact statements completely failed to meet quality assurance guidelines and only 30% fully met them. Strengthening independent evaluation there might not go amiss.

Usual spending untested

But the bulk of the government’s spending – the big line items that do not change much from budget to budget – receive rather less attention.

Take the government’s student loan programme. Labour’s zero-percent student loan policy drew attention during the 2005 election campaign and again in 2008. But we do not often hear discussion of the $5 billion gap between the nominal value of the loan and their carrying value.

The vast majority of government spending simply carries on, from year to year, without much notice.

Perhaps an agency established to cost new political party proposals could, between elections, spend its time running rolling reviews of existing spending programmes, ensuring they continue to deliver value for money.
Bryce's report with Khyaati goes through these kinds of fiscal councils, and some of the other tasks that they might usefully undertake.